lit bomb with a dollar sign on it

Digital Procurement Download: Too Big To Succeed

1. News Bite: $165 Million Blockchain Fiasco at Australian Stock Exchange

In 2015, the Australian Stock Exchange announced an ambitious plan to completely replace their settlement and clearing system CHESS with a new, blockchain-based system. 7 years later, the system was only “63 percent complete” with an “uncertain” timeline to completion. The project has now been completely abandoned. The associated write-down is roughly AUD 250 million (USD 165 million).

I’m fascinated and appalled on multiple fronts.

First, is there any example in history of a 9 figure tech project that didn’t end in a total fiasco? No successful tech company has been built this way – by starting with a hundred million dollar development plan. I don’t think that’s an accident.

When you’re planning a project of that scale then almost by definition you have to take a waterfall approach – there are too many downstream dependencies, which is how you end up with such a large cost number. There is simply no 9 figure project without a Gantt chart.

But waterfall doesn’t work. The reason is simple: “Responding to change over following a plan” is a core tenet of Agile principles, which have been proven time and time again to be the successful approach to software development.

“Oh but we are doing Agile development on our $100 million mega-project!” organizations exclaim. They have Scrum Masters and everything! But scratch the surface and you find it’s really Scrumfall. Because, again, there is no 9 figure project without a Gantt chart.

This is the other big thing that bothers me about this. As someone in the procurement tech space, it just makes me mad on behalf of all the procurement professionals I speak with who can’t get budget for sub-$100k investments that will save their organizations millions. Why? Often because it is crowded out by these mega-projects that promise absurd and unachievable ROIs, and have such high-level support that no one feels comfortable raising their hands to say “maybe we shouldn’t do this”.

Saving millions doesn’t look so sexy compared to an investment that is expected to return billions. But the latter almost never pays off, and in addition to the lost money there is the opportunity cost of not having done smaller projects that would have paid off.

Decades of software development deliver clear lessons for success: start small, demonstrate value, iterate, expand. And yet we continue to see these kinds of bloated mega-projects get greenlit. When are organizations going to learn that it just doesn’t work?

2. Cool Tool: Trello

In the spirit of this week’s news bit, let me give a shout out to a better way of facilitating truly agile management. If you aren’t already using kanban boards, you should be – they aren’t just for software development. And Trello is the benchmark for kanban boards.

The free plan includes a lot – it’s very likely you’ll never need more than that, even with a whole team using it. One tip: make each card very small. And when you think you’ve made it small enough, split it up into several even smaller cards. One big card will never get done, but 20 cards breaking down the individual steps will.

We run Vendorful with kanban – not just the software development team but marketing, customer success, internal projects, etc. It’s a simple and powerful way of making big progress in small increments.

3. Words of Wisdom

“You are maximising risk exposure by doing big batches. Taking big decisions up-front, when you know the least…. no-one actually knows what will work best until we try it, see the result and then tweak it.” – Marcus Hammarberg, Agile Coach

SRM-CRM Gap

CEOs Must Close the SRM-CRM Gap

Among Fortune 500 companies, 75% of spend goes to external suppliers. Yet CEOs spend only 1% of their time with suppliers on average. The conclusion is clear: from the top down, companies are massively underinvesting in managing their supplier relationships. At the same time customer relationships get significant attention. This is the SRM-CRM Gap.

What exactly is the SRM-CRM Gap?

Imagine a head of sales saying the following to his CEO: “We only have the tools and personnel to closely follow 10% of our customers and prospects. We need to segment them and focus only on the most significant.” What would the CEO do?

Probably one of three things:

  • Get better CRM tools
  • Get more people
  • Get a new head of sales

And whichever option they chose, they’d do it immediately. There is simply no way that any company would tolerate that lack of visibility into its customers and prospects.

Customer Relationship Management is so fundamental to modern business that it’s never a question of whether you manage all of your relationships, but how. 100% visibility is simply assumed.

Now consider the situation with Supplier Relationship Management in your own company. Do you have 100% visibility?

Now you understand the SRM-CRM gap.

Quantifying the SRM-CRM Gap

So we have a sense of what it is, but how big is it?

According to State of Flux’s 2021 Global SRM Research Report, most organizations have not invested in a dedicated third party system for any of the major pillars of SRM:

  • Supplier onboarding / master data (48%)
  • Risk management (29%)
  • Performance management (18%)
  • CSR/sustainability management (16%)
  • Relationship management (11%)
  • Innovation management (6%)

Can you imagine a world in which only 48% of companies invested in commercial software to track their customer data? Of course not. 91% of companies with at least 11 employees have a CRM system. That number quickly approaches 100% as the size of the company increases.

So one decent quantification of the SRM-CRM Gap is how much more the average company invests in CRM vs. SRM. For more than half of companies, that number will approach 100% of their CRM investment.

Why does the SRM-CRM Gap exist?

The reason this gap exists is simple: CEOs and CFOs see the value of CRM, and they don’t see the value of SRM.

CRM shows its value through obvious and measurable statistics:

  • Revenue growth
  • Short sales cycles
  • Higher customer retention

In contrast, SRM shows its value through more subtle measures, including soft costs and problems avoided:

  • Less time spent on routine tasks
  • Fewer adverse supply events
  • Improved vendor compliance
  • More supplier innovation

There is obviously significant value to gain from reducing those soft costs and risks, and from getting better results out of your suppliers. But it’s more difficult to quantify. Most organizations don’t do it.

Building the SRM ROI case

If quantifying the benefits of SRM are at the root of the SRM-CRM Gap, then one solution is to make SRM’s benefits more tangible. Organizations that invest in SRM save money and get more value out of their supplier relationships – a rare win-win situation.

According to data from Beroe Inc., best-in-class SRM programs deliver an ROI of 1100%. The ROI derives from the following efficiencies:

  • 50% FTE cost savings on operational tasks
  • 60% reduction in operational risk incidents
  • 30% reduction in supplier failure

Overall, organizations that apply SRM principles to at least 90% of their suppliers realize 30-35% more value than organizations that focus SRM only on their strategic suppliers.

The SRM prescription for senior leadership

The way forward is clear: executives must place a higher priority on managing their supplier relationships. But where to begin?

The first step is to define your goal. And the goal for any CEO ought to be visibility on 100% of supplier relationships.

Once you’ve established that goal, there are three stages on the path to full supplier visibility, and they don’t all need to be done at once:

  1. Develop a shared source of truth about vendor relationships. This means creating a centralized database of supplier information that can be accessed by the whole Procurement team and key stakeholders outside of Procurement and Supply Chain.
  2. Analyze supplier performance on quantitative and qualitative measures across the organization. This will help identify areas where improvement is needed.
  3. Apply business intelligence to data collected in steps 1 and 2 to visualize supplier performance and risk. Simply stated, data captures what is happening right this second, whereas business intelligence uses historical data to make predictions on future trends and problems. Early detection of issues and trends can help you avoid them becoming troubles later.

Organizations simply must know their suppliers as well as they know their customers. Technology can help get there, but the first step is to commit to changing the status quo and making it a priority to get 100% of these relationships under management.

Your Software RFP is Broken – Here’s How to Fix It

Have you ever been involved in a software purchase that failed to meet the stated objectives? That ran way over budget? That launched months or years later than planned? Of course you have. Research shows that only about 30% of digital transformations are successful.

One of the main reasons for this is the way enterprise software is often purchased: through an RFP (request for proposal). On paper, it seems like an RFP is a strong approach: define your goals clearly, evaluate solutions side-by-side on objective criteria, pick the best fit with input from all stakeholders. Unfortunately this approach is fundamentally flawed. It makes a number of incorrect assumptions.

Flawed assumption 1: You fully understand the requirements up-front

You spent weeks building your buying team. You spent months interviewing users. You did your research on the market. You even brought in consultants to help you identify and document your requirements. Surely you know everything you need to know to specify exactly what you need and what you want to buy! Right?

Wrong. You will definitely identify additional requirements – sometimes extremely critical ones! – during implementation. If the project is complex enough to warrant an RFP, then it is too complex to fully document up front. It will affect too many people, touch too many systems, and modify too many business processes for anyone to understand the full impact ahead of time.

Flawed assumption 2: You are picking a static solution

An RFP implies that you are looking for a software solution that will not change. You want to buy a done deal – something that you can install, turn on, and forget about.

In reality, even the best enterprise software solutions are constantly evolving. They have to in order to keep up with the rapidly changing needs of users and the rapidly changing technology landscape. The best enterprise software vendors are constantly innovating and releasing new features and functionality.

And remember: you will miss key requirements in the RFP. Therefore, in order to be successful, the solution you select must be flexible, if only to accommodate the inherent imperfection of the requirements gathering process.

Instead of thinking about a static solution, you should be identifying a partner and platform that can adapt when your own understanding of your needs changes.

Flawed assumption 3: A feature list can define the solution fit

In an RFP, you are essentially comparing feature lists. Yes, you will ask about customer references, support, security, and so on. But to compare functionality, you’re going to ask about a long list of features.

However a feature is not a solution. A feature is just a tool that might or might not be helpful in solving your specific problem.

The challenge is figuring out how all of the features fit together to provide an overall solution that meets your needs. This can be extremely difficult to do in an RFP, because you are not actually seeing the software in action. You are just reading about it.

The only way to really understand how well a solution fits is to see it in action and use it yourself. This is why trial programs are so important (more on that later).

Flawed assumption 4: You can evaluate user experience from a demo

A demo is not the same as using the software. In a demo, you are seeing a pre-planned, rehearsed, and polished presentation of the software. The vendor controls what you see and how you see it. They are carefully selected to show you only the very best parts of the software. Even when you think you have dictated the demo script to the vendor, it is the vendor that is ultimately constructing and driving the demo, not you.

In reality, enterprise software is complex. It is used by lots of different types of users for all sorts of different purposes. There are bound to be areas that are confusing or difficult. The only way to really understand the user experience is to try the software yourself in a real-world setting.

Flawed assumption 5: User experience shortfalls aren’t important

You made your product comparisons. You thought about information security. You considered vendor financial viability. You saw a great demo. You got pricing that you’re happy with. So you make your selection. And most surprising of all, implementation goes right on schedule and according to plan! Then you go live and… users revolt.

What happened?

In the last section I talked about not being to evaluate user experience from a demo. You might have read it and thought to yourself “So what if it’s a little clunky to use? If it does everything we need at the right price it will still be worth it.”

Here’s the thing: User experience shortfalls kill user acceptance, and low user acceptance kills IT projects.

Think about it this way: you can have the most technically perfect, feature-rich, and secure software in the world. But if people can’t figure out how to use it, or don’t like using it, they are not going to use it. And if they’re not using it, you’re not going to get any value from it.

User experience should be one of your top priorities when selecting enterprise software, not an afterthought. And user experience is impossible to evaluate in an RFP.

There is a better way to buy enterprise software

The good news is that there is a better way to buy enterprise software.

Step 1: Use short RFIs to reverse-engineer requirements and eliminate poor fits

An RFI (Request for Information) is a common first step in an RFP process. It is usually a short questionnaire that vendors fill out to provide information about their products.

You can use RFIs to do more than just gather information, though. You can also use them to help reverse-engineer your requirements.

Start by taking a close look at your current pain points. What processes are you trying to improve? What problems are you trying to solve? Then, translate those into broad requirements. Once you have a list of requirements, you can use RFIs to eliminate vendors that are obviously not a good fit.

For example, let’s say you have a requirement that the software must integrate with your existing CRM system. You can use an RFI to ask vendors if their software integrates with CRM systems, and if so, which ones. This will help you quickly eliminate any vendor that does not support your specific CRM system.

There’s a benefit on both sides: Vendors don’t have to fill out lengthy evaluations where they could have qualified themselves out in a couple of questions, and you don’t have to process long, complex responses where a critical mismatch is buried away in hundreds of questions.

Step 2: Run a lengthy trial program with simple user feedback

After you’ve used RFIs to eliminate the obviously poor fits, it’s time to start evaluating the remaining vendors. The best way to do this is with a trial program.

A trial program will give you a chance to try the software in a real-world setting and get feedback from actual users. To make sure you get meaningful feedback, make the trial long. “Long” will vary depending on specific solution you’re looking for – it could range from several weeks to several months, or even a full year if it needs to capture a full financial cycle. And be sure to include a meaningful cross-section of future users in major and minor roles, not just a handful of “power users”.

Throughout the trial program – not just at the end – ask each user to fill out a simple feedback form. NPS (Net Promoter Score) is a great option, but you can also use a short custom form with questions about specific pain points and whether or not they were addressed. Whatever form of feedback you use, make sure it is painless for the end user to provide and easy for the buying team to process – the most important thing is to gather feedback from as many people as possible, even if it’s basic.

Also, the trial isn’t just about you! You’re giving your prospective vendors the opportunity to work with you and develop a much deeper level of understanding of your needs than they could get by looking at a requirements document in an RFP.

Step 3: Identify a very small set of finalists for infosec and pricing evaluations

After you’ve collected feedback from the trial program, you should have a good idea of which vendors are the best fit. From there, you can identify a very small set of finalists to move on to the next stage of evaluation.

At this point, you’ll want to do a more thorough evaluation of information security and pricing. You should also have a much better idea of what you need, so you can make sure the finalist vendors are able to meet your specific requirements.

You’ll also get better responses from your vendors at this stage than you will by opening with a lengthy RFP! The remaining vendors will have a much clearer understanding of your needs thanks to the trial, and since they know they’re on the shortlist they will be willing to invest more time in thoroughly answering your questions and also putting their best foot forward on pricing.

Take the plunge

If you’re still using an RFP to buy enterprise software, it’s time to ditch it. The RFP process for enterprise software is broken. It just doesn’t work in this space. While RFPs not the only reason a majority of digital transformation projects fail, it definitely doesn’t help.

The good news is that by following the steps outlined above, you’ll be able to avoid the most common pitfalls of the RFP process and give yourself a much better chance of selecting best partner for your enterprise software needs. Give it a try on your next project!

White House to Ensure Equity with New Initiatives

The Biden administration recently announced several new initiatives to expand contracting opportunities, particularly for small and disadvantaged businesses.

On Tuesday, the White House announced that in the fiscal year 2021, the federal government awarded small businesses $154.2 billion or 27.2% of total contract dollars—up $8 billion from the previous fiscal year.

The federal government exceeded its small business contracting goals for small disadvantaged and service-disabled veteran-owned businesses.

This summer, the U.S. Departments of Interior and Transportation will host events to provide information on technical and financial assistance opportunities for small, understaffed businesses.

The White House also announced that the Department of Transportation and the Small Business Administration would help expand access to capital for small, disadvantaged businesses by linking them with investment firms. The two agencies will hold business forums to match SBICs with disadvantaged businesses and broker discussions between companies and fund managers.

To ensure equitable procurement opportunities, the government is increasing the contracting goal for small disadvantaged businesses from 5 percent to 15 percent by 2025 and will change how companies are categorized.

Buried Treasure

Bain Gets It: Procurement is an Undiscovered Treasure

II was recently talking with someone who was frustrated that “most of the good articles on procurement strategy in business seem to have been written five to ten years ago.” And right on cue, I came across a piece by some partners at Bain entitled “Unearthing the Hidden Treasure of Procurement.” I strongly recommend that you read the article. It’s not long and you will get a significant return on your invested time. However, if you’re inclined towards bullet points, then you can take advantage of some of the key highlights I’ve identified.

Spend is a Big Issue

The largest single expense category for most firms? External purchasing, which averages a whopping 43% of total costs.

Procurement Savings Potential

Graph from https://www.bain.com/insights/unearthing-hidden-treasure-of-procurement/

Good Procurement Works Wonders

Bain has found the top procurement organizations can reduce an organization’s cost base by 8%-12% on average and then add 2%-3% annual savings on top of that.

Top Companies Buy Better and Spend Better

The two areas that get immediate focus when savings mandates are handed down are improved supplier selection and better price negotiation. Companies multiply their results when they take a step back, however, and rationalize their desired spend before diving into the sourcing process.

Close the Loop on Spending

Procurement manages spending on the category level. Stakeholders in business units manage their budgets across categories. The best companies make sure that category-level savings inform the current year’s budget to ensure that hard-won savings are not ill spent elsewhere.

People, Process, and Tools

Leading organizations have strong capabilities in all these areas: a capable team, running smart processes, empowered by specialized tools.

There’s a ton of great information in this piece and it’s densely packed. So if you were willing to spend the time reading this far, I’ll reiterate my previous suggestion that you read the article in its entirety.

Contracts are the center of many processes

Top 6 Contract Lifecycle Management Benefits and Best Practices

Contracts are a critically important aspect of business that require accuracy and proper oversight. The entire process of monitoring contracts can be a tedious one. Fortunately, technology now allows organizations to automate this process, ensuring greater efficiency, improved compliance with legal requirements, and even cost savings.

With a proper Contract Lifecycle Management (CLM) software in place, you’re essentially able to manage a contract proactively from the beginning of its lifecycle to its completion. If you’re wondering how, here are some of the key contract lifecycle management benefits and best practices to note:

1. Proactively assess and manage risks

In business, your ability to anticipate contractual risks is critical. Issues such as missed renewals, overlooking important amendments, and tracking compliance obligations are common among companies. However, all these can be managed with a dedicated platform, which can keep you informed of these key milestones while providing ready access to key provisions.

A centralized platform that can regulate processes serves to optimize available resources and significantly lowers contractual errors.

2. Ensure compliance of reporting

Compliance is critical for effective contract management. When businesses fail to meet contractual obligations, the risk of contract termination or litigation is increased. Its effect can be felt across multiple departments in your organization. You can avoid this, or at least minimize it, by making sure you are able to properly record and document compliance as it pertains to legal requirements.

3. Access a centralized repository for important data

One of the biggest advantages that a CLM platform can provide is its ability to house all contracts and peripheral documentation relevant to it in a central repository. With a CLM platform, your company is given an unparalleled level of transparency that allows your team to be more productive and focused. 

According to a study, employees typically spend 2.5 hours of their day just searching, managing, or editing documents they need. With a CLM platform, you can eliminate the need for team members to sift through paperwork manually. 

4. Track compliance of agreed supplier terms

Ensuring compliance from suppliers can be difficult and time-consuming. However, it’s a very important part of managing supplier relationships. Given that, any company that is unable to enforce the negotiated terms due to poor contract management will likely suffer from cost inefficiencies.

This may also result in penalties due to your inability to comply with the agreed terms; missing cost-saving opportunities from special terms or rebates; or even incur fees from payment errors that could all have been managed with efficient contract administration. When combined with Scorecarding, Contracts Administration can be even more effective.

5. Boost contract cycle efficiencies

The traditional contract lifestyle starts when a company identifies a need for a particular product or service, and it ends once that product or service is delivered or fulfilled. The entire cycle traditionally takes a while to complete. Good procurement managers know that as they work towards completion, there are certain opportunities for improvement, including saving money, improving delivery, and reducing cycle times. A CLM platform can organize the many moving parts and help contract managers identify where these opportunities are so they can take advantage of it.

6. Enhance supplier as well as customer relationships

Your ability to manage your contracts reflects directly on your organization. After all, contracts are one of the more important documents that drive your supplier and customer relationships. To that end, you want to be able to communicate that your business is valuable, reliable, and credible.

CLM can help fulfill obligations and go above supplier and customer expectations.

Contract administration tends to be viewed as tedious and challenging. A CLM platform can improve this area by streamlining the process through automation and digitization. If you would like to know how Vendorful can assist you with this process, get in touch with us today.

Team: Hands In!

4 Ways to Maximize Engagement with the Procurement Team

Companies with an effective procurement department in place understand just how critical the process is to business.

However, an established system doesn’t guarantee engagement. In fact, according to a Deloitte study, “Internally, engagement across the business remains an area of focus but, for many, a development point.” 

To date, many internal employees try to avoid going through the proper procurement channels. Some key departments feel that going through a standardized procurement system slows down the vendor search and evaluation process. Others think that it adds more bureaucracy to the procurement process, which doesn’t lend value to their work processes.

These reasons underscore the need for procurement professionals to find a way to proactively engage their stakeholders and increase purchasing efficiencies. Here are 4 ways you can do that.

 1. Focus on relationship building

 According to Chief Procurement Officers (CPOs) in a Deloitte study, 74% of CPOs cite “cost savings as the primary driver for performance measurement.” However, while cost savings is a critical driving force for following a systematic procurement process, highlighting another important advantage may prove to be as effective; thereby, helping to build better professional relationships with internal stakeholders.

When companies focus on cost efficiencies alone, it makes the process seem very transactional. Fusing this benefit with other long-term business advantages could provide stakeholders a valued overview of what the procurement department does. 

2. Empower efficiency without forcing policy

Often, established procurement processes are accompanied by new policies that demand employees to comply with the new system.

Instead of pushing for compliance by enforcing the need to comply with set policies, highlight the potential for improved efficiencies. Start by asking employees what they need, understand their challenges, and then present solutions your procurement team can help provide.  

For example, you could highlight how much time automating the procurement process can save for their department, and how your procurement team can assist with writing engaging RFP bids.

3. Make an effort to understand individual department needs

Even with standard processes, there is really no one-size-fits-all approach to efficient procurement. Procurement professionals should understand individual department needs to give them a tailored approach that will be supported by procurement systems your team has put in place.

For example, if you want to engage sales, be sure to reach out to the sales team and gather information about company products and their competition. If you want to learn more about marketing needs, inquire regarding how their department approaches branding and company positioning. For operations, find out what internal processes need additional support.

Knowing more about how your company’s individual departments operate means your procurement team can offer better solutions to their sourcing needs. Ultimately, it helps align your own procurement goals with each department’s objectives.

4. Explore other areas of value

Again, cost reduction may be at the top of every department’s priority list. However, there are other ways that procurement teams can provide value.

For instance, procurement teams are very knowledgeable about market trends. Data gathered from your research could very well be used for more insightful decision making for marketing and sales departments.

Bottom line…

Successful procurement teams with great engagement rates not only use the knowledge of having the necessary processes in place, but they also make sure their stakeholders are using it.

To find out how automating key procurement processes can help boost engagement, schedule a demo of our vendor management services.

Are your sourcing methods as effective as you think?

Quiz: Are Your Sourcing Methods as Effective as You Think?

If your procurement team is like the ones we usually encounter, then it’s a given that you would like to accomplish your work in the most efficient way possible. So, when traditional sourcing methods deliver the results you need, it’s natural that you stick with them.

However, staying competitive and keeping up with the rapid changes in the business world requires you to take a more forward-thinking approach. Technology means you now have the option do things faster and better. For example, eSourcing platforms help expand your reach as you search for new suppliers or product sources, and can do so at a more competitive cost. With a solutions landscape that has evolved considerably in recent years, there’s no better time than now to reevaluate whether your current sourcing methods are as effective as you think. (And if you are part of the aforementioned procurement teams that we encounter, you’re undoubtedly in the midst of this reevaluation process.)

To assess what you can do to improve your processes, take this brief quiz below. Read through the questions and give yourself a point for each YES answer.

  1. My team and I use a lot of documents, emails, and spreadsheets to manage our sourcing and procurement methods efficiently.
  2. The lack of visibility and transparency in traditional procurement methods means I have to spend more time managing and monitoring bids and proposals than doing productive work.
  3. I tend to spend a lot of time coordinating between suppliers and internal stakeholders to ensure everyone is in the loop.
  4. The prospect of sourcing new products or suppliers feels tedious and daunting, and usually costs a lot of money.
  5. It takes us a lot of time to prepare a proposal to send out to prospective bidders.
  6. It regularly takes our team weeks, or even months, to find the right supplier that meets our stakeholders’ requirements.
  7. Our suppliers tend to feel that we’re pitting them against each other, which creates tension in the relationship.
  8. Our relationships with our network of suppliers can be strained, especially when we are trying to get the best price for our requirements.
  9. Our team finds it difficult to find new suppliers to participate in the sourcing process.
  10. Objectively speaking, our team finds that our current processes can definitely be improved to be faster, more transparent, and cost efficient.

Now, add up the number of times you answered YES to the above questions.

If you totaled 3-5:

Reevaluate your current processes. Your methods may be effective at the moment, but there could be room for improvement. At the rate businesses are evolving, you might find it harder to keep up with the demands of clients and suppliers down the line. At this point, it would be very helpful to find new ways to keep your procurement team focused and motivated—whether through additional coaching, training or by introducing new tools to help them improve current practices.

If you added up 5 or more:

You clearly need to find a new approach to ensure that your company maintains efficiency and efficacy in spite of apparent sourcing challenges. You might consider leveraging sourcing tools that can offer transparency, streamline communication, improve sourcing practices, and manage supplier relationships all in a single eSourcing platform.

Take advantage of Vendorful’s eSourcing and vendor management platform and find out how you can use it to improve your sourcing methods. Contact us today.

Busting myths about reverse auctions

Busting the 6 Biggest Reverse Auction Myths

The benefits of Reverse Auctions might seem obvious to many. That begs the question — why aren’t they more common? Perhaps the reluctance to use the stems from the myths that prevent organizations from recognizing how they can improve efficiencies, save money, and build better supplier relationships.

To that end, we’ve run down a list of the biggest myths surrounding the Reverse Auction process below and provided some information that, we hope, will increase your comfort level.

1. Reverse Auctions can only be used for procurement in the private sector.

Not true. In fact, federal agencies are leading the way in the public sector when it comes to the adoption of real-time competitive bidding. As far back as 2012, the US government has awarded $1 billion in contracts. Establishing Reverse Auctions as a best practice has ultimately allowed public entities to save millions annually.

2. Reverse Auctions are only applicable for blue-chip companies.

Outside the public sector, Reverse Auctions may have seen broader adoption by larger organizations like Fortune 500 companies as a way to streamline their negotiation process. However, in recent years, small to medium enterprises have also begun to recognize both the value and applicability of such a process.

3. Reverse Auctions are expensive — shifting to this process will be costly.

Reverse Auction platforms are now available as a cloud-based service. This significantly lowers the overhead cost for a business. Following the software-as-a-service model, upfront costs are also reduced. The simplicity and intuitiveness of most platforms also ensure that there is minimal employee training involved. (And per myth #2, more competitively priced, easier-to-use tools have made Reverse Auctions a practical consideration for organizations of all sizes.)

4. Reverse Auctions can only be used to procure commodity goods — they can’t be used to purchase services.

Both goods and services can be effectively purchased following a Reverse Auction negotiation process.

There’s a misconception that services aren’t ideal for the Reverse Auction process given that services typically have dynamic quantities and requirements. Broadly, that may be true, but it doesn’t mean that Reverse Auctions should never be considered when contemplating a service. Indeed when the scope of service can be clearly defined, a Reverse Auction may well be the best approach. It helps organizations determine fair pricing from potential suppliers, which ultimately helps reduce costs.

5. Reverse Auctions are detrimental to the buyer-supplier relationship.

In any business, maintaining good working relationships is key. This is perhaps the biggest reason why companies are so reluctant to use Reverse Auction platforms. The assumption is that given how Reverse Auctions pit suppliers against one another and generate downward price pressure on the supplier, the process can put a strain on your business’s relationship with potential suppliers.

However, no other platform can provide the level of transparency that Reverse Auction models offer. No other negotiation tool can benefit both purchasers and suppliers and support a fair, open bidding process. Quite simply, Reverse Auctions can actually help enhance trust and credibility. And by “negotiating in real-time,” all of the suppliers save valuable time, which they can leverage more productively. (Interestingly enough, just yesterday, a supplier reached out to us and inquired about how he could find more reverse auctions in which his company could compete. “We do really well there,” he said. “We’ve got a great supply chain.”)

6. Reverse Auctions put too much focus on price.

It’s typical to assume that the lowest bid in Reverse Auction events always wins. However, businesses aren’t bound to choose the cheapest offer. There is other critical information that eSourcing platforms can provide so businesses can weigh the cost against other factors such as past performance, supplier capabilities, support, and quality assurance.

Identifying these long-standing myths about Reverse Auctions and dispelling them is your first step towards tapping a beneficial platform for both your company and your suppliers.

Not using an eSourcing platform or stuck on a hard-to-use system? Contact us to find out more about what Vendorful can do for your business.